1
00:00:00,080 --> 00:00:12,960
Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane

2
00:00:13,480 --> 00:00:17,560
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,520
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:28,760
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Troy

5
00:00:28,760 --> 00:00:30,200
Speaker 1: Guy ask you you want to us in the studio

6
00:00:30,280 --> 00:00:33,680
Speaker 1: here in New York, Chief investment officer at Skybridge Capital.

7
00:00:33,720 --> 00:00:36,239
Speaker 1: Great to see you, Troy. Let's talk about that the

8
00:00:36,240 --> 00:00:39,400
Speaker 1: Federal Reserve. Everyone seems to view the fetes Sometimes there's

9
00:00:39,479 --> 00:00:42,040
Speaker 1: this pockets of market participants that always bring it up.

10
00:00:42,120 --> 00:00:44,519
Speaker 1: Does the FETE know something we don't know looking at

11
00:00:44,560 --> 00:00:48,080
Speaker 1: those minutes yesterday? They know nothing that we know. No, no,

12
00:00:48,280 --> 00:00:50,640
Speaker 1: I mean, at the end of the day, their data dependent.

13
00:00:50,680 --> 00:00:53,559
Speaker 1: They've been articulating that for quite some time. You know.

14
00:00:53,600 --> 00:00:56,760
Speaker 1: Obviously last year, like most market participants thought growth would

15
00:00:56,800 --> 00:01:00,160
Speaker 1: stay stronger in Q four and the impact from monetary

16
00:01:00,200 --> 00:01:03,160
Speaker 1: tightening would not be as dramatic. And you know, the

17
00:01:03,160 --> 00:01:05,640
Speaker 1: beauty of where we are today now that financial conditions

18
00:01:05,640 --> 00:01:10,039
Speaker 1: have loosened off the extreme tights of December is every

19
00:01:10,120 --> 00:01:12,640
Speaker 1: investor knows it's just as much as the Fed. You

20
00:01:12,680 --> 00:01:15,360
Speaker 1: can look at the data's rolls rolls in and make

21
00:01:15,400 --> 00:01:18,000
Speaker 1: your own informed decisions of whether you're being paid enough

22
00:01:18,040 --> 00:01:20,200
Speaker 1: to take that risk. And you know, one of the

23
00:01:20,200 --> 00:01:23,240
Speaker 1: things that surprised us recently is that markets have been

24
00:01:23,280 --> 00:01:26,040
Speaker 1: so sure that the next move is a cut. You know,

25
00:01:26,120 --> 00:01:28,720
Speaker 1: when you talk to policy makers or economists or just

26
00:01:28,760 --> 00:01:32,080
Speaker 1: look at the data yourselves, there's a non zero probability

27
00:01:32,120 --> 00:01:34,360
Speaker 1: that we have one of two more hikes this cycle, right,

28
00:01:34,360 --> 00:01:36,720
Speaker 1: But there's also a reasonable probability the next move is

29
00:01:36,720 --> 00:01:40,199
Speaker 1: a cut in and and that's been unusual the last

30
00:01:40,200 --> 00:01:43,280
Speaker 1: six years because two years ago it was either one hike,

31
00:01:43,360 --> 00:01:45,840
Speaker 1: two hikes, three hikes, and there was no probability of

32
00:01:45,840 --> 00:01:48,160
Speaker 1: a cut. And obviously in the in the crisis, it

33
00:01:48,240 --> 00:01:50,520
Speaker 1: was cutting rates to zero as fast as possible. Just

34
00:01:50,560 --> 00:01:51,880
Speaker 1: to put you on the spot a little bit. Do

35
00:01:51,920 --> 00:01:54,040
Speaker 1: you think the barber is higher for a hike or

36
00:01:54,120 --> 00:01:56,080
Speaker 1: is the bar hi for a cut at this point?

37
00:01:56,240 --> 00:01:57,600
Speaker 1: You know, I think the bar is higher for a

38
00:01:57,680 --> 00:01:59,520
Speaker 1: hike at this point because if you look at the

39
00:01:59,520 --> 00:02:02,240
Speaker 1: weakness growth overseas and the natural slowing in the U.

40
00:02:02,240 --> 00:02:04,320
Speaker 1: S economy. You know, we've talked about this before, where

41
00:02:04,360 --> 00:02:07,160
Speaker 1: last year was peak cyclical growth. Uh, this year, we

42
00:02:07,280 --> 00:02:09,079
Speaker 1: expected somewhere between two to two and a half, but

43
00:02:09,120 --> 00:02:11,600
Speaker 1: it could be slightly lower given how Europe's really fallen

44
00:02:11,600 --> 00:02:14,880
Speaker 1: off a cliff um and you go into and you're

45
00:02:14,880 --> 00:02:17,400
Speaker 1: looking at one and a half to two. So given

46
00:02:17,520 --> 00:02:20,560
Speaker 1: that inflations rolled over, given his slow his growth has

47
00:02:20,560 --> 00:02:23,000
Speaker 1: been overseas, given the fact that we're much later in

48
00:02:23,040 --> 00:02:25,639
Speaker 1: the cycle and there's no way consumption growth or business

49
00:02:25,639 --> 00:02:28,120
Speaker 1: fixed investment gives to be high this year in twenties

50
00:02:28,200 --> 00:02:30,360
Speaker 1: they were last year. You know, that would lead us

51
00:02:30,360 --> 00:02:33,120
Speaker 1: to think that there's a higher probability of a cut,

52
00:02:33,360 --> 00:02:36,640
Speaker 1: But you can't completely discount the one to two more

53
00:02:36,720 --> 00:02:39,040
Speaker 1: hikes in this cycle if growth picks back up. Troy,

54
00:02:39,040 --> 00:02:41,239
Speaker 1: good morning. I know in December twenty six you told

55
00:02:41,240 --> 00:02:44,640
Speaker 1: your Massachusetts Institute of Technology to load the boat and

56
00:02:44,680 --> 00:02:46,959
Speaker 1: they did double leverage up or up twelve percent of

57
00:02:47,000 --> 00:02:52,200
Speaker 1: the Dow in the spent of the Nasdack composite. How

58
00:02:52,280 --> 00:02:56,480
Speaker 1: far behind his institutional Wall Street in the equity markets

59
00:02:56,560 --> 00:03:00,120
Speaker 1: right now? Uh? Well, I would say anyone that all

60
00:03:00,240 --> 00:03:03,440
Speaker 1: is ascid allocation is behind always behind equities, right, So

61
00:03:03,480 --> 00:03:06,440
Speaker 1: if you're not, this cycle has been really reminisced of

62
00:03:06,480 --> 00:03:08,799
Speaker 1: the nineties. As you guys know right where, you know,

63
00:03:08,840 --> 00:03:10,720
Speaker 1: the only way to keep up with equities is to

64
00:03:10,720 --> 00:03:12,720
Speaker 1: be a percent long equities, and the only way to

65
00:03:12,880 --> 00:03:15,440
Speaker 1: perform equities has been to be levered long, right, But

66
00:03:15,880 --> 00:03:18,560
Speaker 1: no one does that, right. The question is how much

67
00:03:18,600 --> 00:03:21,120
Speaker 1: of your equity capital you peel off into fixed income?

68
00:03:21,360 --> 00:03:23,720
Speaker 1: You know, and for defined benefit plans, it's not such

69
00:03:23,720 --> 00:03:26,320
Speaker 1: a bad idea because you know, it helps provide cash

70
00:03:26,320 --> 00:03:29,920
Speaker 1: flow um. When you look at the average investor compared

71
00:03:29,960 --> 00:03:32,080
Speaker 1: to the late nineties, when it was all equities all

72
00:03:32,120 --> 00:03:35,160
Speaker 1: the time, they own more fixed income, more alternative investments,

73
00:03:35,600 --> 00:03:39,520
Speaker 1: and so as you've seen the embrace of acid allocation

74
00:03:39,560 --> 00:03:42,840
Speaker 1: by not only institutions behind it worths. What that obviously

75
00:03:42,920 --> 00:03:46,000
Speaker 1: leads to is less upside when things are fantastic, like

76
00:03:46,080 --> 00:03:48,800
Speaker 1: we've really been through the last four years, but also

77
00:03:48,920 --> 00:03:52,240
Speaker 1: far less downside when things turn south. And so yeah,

78
00:03:52,400 --> 00:03:54,520
Speaker 1: I mean, so that's why we look at it. If

79
00:03:54,560 --> 00:03:57,120
Speaker 1: you believe in asaid allocation, embrace it, it leads to

80
00:03:57,160 --> 00:04:02,800
Speaker 1: more continuous, constant return streams and dramatically less volatility um.

81
00:04:02,840 --> 00:04:05,160
Speaker 1: But that being said, in cycles like this or the

82
00:04:05,240 --> 00:04:09,000
Speaker 1: late nineties, you obviously would be better off long equities.

83
00:04:09,080 --> 00:04:13,320
Speaker 1: Are you positioned for higher equity prices? You know, we're so.

84
00:04:13,400 --> 00:04:15,760
Speaker 1: Our job is to make high single digit tim with

85
00:04:15,840 --> 00:04:19,000
Speaker 1: as little downside and correlation in bated equities as possible.

86
00:04:19,520 --> 00:04:22,440
Speaker 1: So when you have that mandate, particularly at the late

87
00:04:22,520 --> 00:04:24,920
Speaker 1: stage of a cycle, when when there's been so little

88
00:04:24,960 --> 00:04:27,359
Speaker 1: alpha and the equity part of the capital structure, you know,

89
00:04:27,400 --> 00:04:29,599
Speaker 1: we've been focused more on cash flows tied to the

90
00:04:29,640 --> 00:04:33,480
Speaker 1: U S consumer UH, commercial real estate UM, whether it's

91
00:04:33,520 --> 00:04:37,280
Speaker 1: government sponsored plans like Freddie Max freddie k Plan or

92
00:04:37,400 --> 00:04:40,720
Speaker 1: SBL plan UM, you know, tied to the regional community

93
00:04:40,720 --> 00:04:43,080
Speaker 1: banking system. So we look at that as we can

94
00:04:43,120 --> 00:04:46,120
Speaker 1: provide high single digit returns but have far less upside

95
00:04:46,120 --> 00:04:49,479
Speaker 1: if things go south. Obviously that's disappointing in quarters like

96
00:04:49,560 --> 00:04:52,719
Speaker 1: Q one or or in two thousand and seventeen. But

97
00:04:52,800 --> 00:04:55,000
Speaker 1: if we can hit high schnole digit returns and be

98
00:04:55,120 --> 00:04:57,280
Speaker 1: up in years like last year, which we in a

99
00:04:57,279 --> 00:04:59,920
Speaker 1: handful of others were, you know, that's the consistent which

100
00:05:00,000 --> 00:05:02,000
Speaker 1: own stream at least that our investors are looking for.

101
00:05:02,200 --> 00:05:05,400
Speaker 1: So let's talk about that high single digit returns with

102
00:05:05,520 --> 00:05:08,080
Speaker 1: low beta to equity, don't you end up with a

103
00:05:08,160 --> 00:05:12,839
Speaker 1: really concentrated portfolio here in the United States. Well, look

104
00:05:12,880 --> 00:05:17,200
Speaker 1: there the consumer credit sectors vast, right, I mean, there's

105
00:05:17,320 --> 00:05:21,039
Speaker 1: r n B s, there's legacy student loans, um, there's

106
00:05:21,080 --> 00:05:24,400
Speaker 1: some uh you might be surprised with some attractive auto loans,

107
00:05:24,440 --> 00:05:26,760
Speaker 1: auto receivables these days. You know, if you look at

108
00:05:26,760 --> 00:05:29,599
Speaker 1: the c MBS market, their vast uh. You know, the

109
00:05:29,640 --> 00:05:32,360
Speaker 1: banking system the US is vast. So you know, from

110
00:05:32,400 --> 00:05:35,200
Speaker 1: our standpoint, you always have to pick one or two

111
00:05:35,279 --> 00:05:39,200
Speaker 1: or maybe three high conviction themes um which are certainly

112
00:05:39,440 --> 00:05:42,440
Speaker 1: uh no, more concentrated than being long equities because at

113
00:05:42,440 --> 00:05:44,600
Speaker 1: the end of for long equities, you know, it's all

114
00:05:44,600 --> 00:05:48,080
Speaker 1: about beta. But how do you bomp out that just quickly? Troy? Yeah, Well,

115
00:05:48,120 --> 00:05:52,160
Speaker 1: again we were thinking of any individual investment theme. We're

116
00:05:52,160 --> 00:05:55,240
Speaker 1: shooting for high single digits with much less downside than equities.

117
00:05:55,279 --> 00:05:58,040
Speaker 1: So that's the bar it needs to clear. Now any

118
00:05:58,080 --> 00:06:00,880
Speaker 1: given time, certain ones have more condact city like coming

119
00:06:00,920 --> 00:06:03,840
Speaker 1: off the Trump election, obviously bank credit quality was going

120
00:06:03,880 --> 00:06:06,960
Speaker 1: to expand dramatically and improve. Um. Right now, we're looking

121
00:06:06,960 --> 00:06:10,240
Speaker 1: more at multifamily uh, certain plans that are sponsored by

122
00:06:10,279 --> 00:06:13,120
Speaker 1: the government where you have slightly better upside less downside.

123
00:06:13,480 --> 00:06:16,239
Speaker 1: So so there's no classic barbelling like from an ASDA

124
00:06:16,240 --> 00:06:18,919
Speaker 1: allocation standpoint of hey, we're long equities that gives us

125
00:06:18,960 --> 00:06:21,159
Speaker 1: the juice, and there were also long bonds which gives

126
00:06:21,200 --> 00:06:25,520
Speaker 1: us downside protection. Were more linear thinkers, Tom and looking

127
00:06:25,520 --> 00:06:28,080
Speaker 1: for positive convexity and that every theme has to stand

128
00:06:28,120 --> 00:06:31,919
Speaker 1: on its own interesting and hopefully provide some downside and

129
00:06:32,000 --> 00:06:35,520
Speaker 1: correlation benefits with others or downside protection. But we're not

130
00:06:35,520 --> 00:06:37,520
Speaker 1: gonna add something that can make two to three percent

131
00:06:37,880 --> 00:06:40,599
Speaker 1: just because it'll be you know, uh down a little

132
00:06:40,680 --> 00:06:42,840
Speaker 1: less if things go south. Troy right to catch out

133
00:06:42,839 --> 00:06:44,720
Speaker 1: with you. I'm not going to run Troy Gusky that

134
00:06:44,760 --> 00:07:04,039
Speaker 1: Chief Investment Alfasa at Skybridge Capital. Our next guest is

135
00:07:04,080 --> 00:07:07,320
Speaker 1: truly expert on the courage it took to clear markets

136
00:07:07,360 --> 00:07:11,400
Speaker 1: in the US, but Johnny can't convey how it. Davos,

137
00:07:11,520 --> 00:07:17,920
Speaker 1: this was the and only backstory Clear cleared the banking

138
00:07:17,960 --> 00:07:21,760
Speaker 1: Systetcy grazijoining US now head of Banks and Diversified Finance

139
00:07:21,800 --> 00:07:25,280
Speaker 1: Research Morgan Stanley, Betsy has always a privilege to get

140
00:07:25,280 --> 00:07:28,880
Speaker 1: your thoughts, to read your research, help us prepare for

141
00:07:28,920 --> 00:07:32,360
Speaker 1: the bank running season that begins later this week, Yes, tomorrow,

142
00:07:32,360 --> 00:07:35,600
Speaker 1: we're going to kick off with Wells and JP uh P,

143
00:07:35,800 --> 00:07:39,520
Speaker 1: n C, Bright and Early. Our expectation is that, look,

144
00:07:39,520 --> 00:07:41,000
Speaker 1: the numbers are going to be a little bit weak.

145
00:07:41,040 --> 00:07:43,240
Speaker 1: They're gonna be down year on year in trading and

146
00:07:43,560 --> 00:07:47,280
Speaker 1: an advisory. We believe that's more than in the price

147
00:07:47,600 --> 00:07:51,360
Speaker 1: right because it's expected given the fact that we had

148
00:07:51,560 --> 00:07:53,760
Speaker 1: the government shutdown, so we should be prepared for that.

149
00:07:53,880 --> 00:07:57,440
Speaker 1: Our our estimates are still a little bit below the street, um,

150
00:07:57,480 --> 00:07:59,480
Speaker 1: and I think that's just you know, people being a

151
00:07:59,520 --> 00:08:01,840
Speaker 1: little late to update their numbers for what we know.

152
00:08:02,160 --> 00:08:04,480
Speaker 1: I read one of your recent notes pricing the right cut.

153
00:08:04,720 --> 00:08:07,000
Speaker 1: The fear of the right cut seems to be driving everything,

154
00:08:07,040 --> 00:08:09,560
Speaker 1: particularly the back end of last year and into this year.

155
00:08:09,880 --> 00:08:12,960
Speaker 1: Have we priced that into we believe. So now look,

156
00:08:13,040 --> 00:08:16,080
Speaker 1: let me explain what that means. To your point, fear

157
00:08:16,120 --> 00:08:18,960
Speaker 1: of recession seems to be priced into the bank stocks

158
00:08:19,080 --> 00:08:21,160
Speaker 1: and nowhere else in the SMP. When we look at

159
00:08:21,160 --> 00:08:24,239
Speaker 1: the SMP, the pe is you know, close to close

160
00:08:24,280 --> 00:08:28,280
Speaker 1: to highs and the relative pe of the banking sector

161
00:08:28,320 --> 00:08:33,320
Speaker 1: today that I cover is bumping around cycle lows. So

162
00:08:33,760 --> 00:08:37,040
Speaker 1: you know, I kind of asked myself, why is that? Um,

163
00:08:37,120 --> 00:08:39,360
Speaker 1: And it's it's hard for me to to understand why

164
00:08:39,400 --> 00:08:42,000
Speaker 1: people think there's you know, recession coming in the near term.

165
00:08:42,120 --> 00:08:43,840
Speaker 1: It's right where I wanted to go. But first, Betsy,

166
00:08:43,880 --> 00:08:46,480
Speaker 1: it's really important. How did James Gorman do yesterday in

167
00:08:46,520 --> 00:08:49,280
Speaker 1: the LoveFest and Washington? Are you trying to get Bessie

168
00:08:49,280 --> 00:08:52,240
Speaker 1: in trouble? Are you trying to get Bessie in trouvel? Oh?

169
00:08:52,320 --> 00:08:55,040
Speaker 1: We could talk and get her into so much trouble.

170
00:08:55,320 --> 00:08:58,600
Speaker 1: I had a lot of meetings on my calendar already. Yeah,

171
00:08:59,640 --> 00:09:03,480
Speaker 1: I didn't. And watch the Betsy. To your point on

172
00:09:03,559 --> 00:09:07,439
Speaker 1: the mystery of bank valuations, do the banks goose that

173
00:09:07,640 --> 00:09:11,240
Speaker 1: with financial engineering or do they just have to wait

174
00:09:11,600 --> 00:09:14,880
Speaker 1: to find a better value? You know, I think that

175
00:09:14,960 --> 00:09:17,760
Speaker 1: what has happened is we need to crank through the

176
00:09:17,760 --> 00:09:23,040
Speaker 1: next several quarters here and our expectation is that we

177
00:09:23,200 --> 00:09:26,680
Speaker 1: have solid economy and that you know, our are my

178
00:09:26,760 --> 00:09:30,560
Speaker 1: colleague Allen Center, who you know well uh is looking

179
00:09:30,600 --> 00:09:33,400
Speaker 1: for a pickup in g d P over you know,

180
00:09:33,480 --> 00:09:36,720
Speaker 1: two q three q UM from what is expected to

181
00:09:36,760 --> 00:09:39,480
Speaker 1: be a low point in one queue due to government shutdown.

182
00:09:39,520 --> 00:09:42,520
Speaker 1: Another reasons the banks that I just happened to review

183
00:09:42,600 --> 00:09:46,760
Speaker 1: City Group yesterday, picking randomly among the gathered. The operating

184
00:09:46,920 --> 00:09:53,199
Speaker 1: income build at these ginormous institutions is extraordinary yesterday, did

185
00:09:53,240 --> 00:09:57,400
Speaker 1: Washington or our listeners or myself or John do we

186
00:09:57,440 --> 00:10:01,800
Speaker 1: actually understand how big the big banks are? Oh? Me, Oh,

187
00:10:01,840 --> 00:10:04,600
Speaker 1: that's a question for me. Um. You know, yeah, I

188
00:10:04,679 --> 00:10:07,840
Speaker 1: do expect that you know, people understand that the the

189
00:10:08,280 --> 00:10:11,400
Speaker 1: you know, top five banks have depending on the asset class,

190
00:10:11,440 --> 00:10:15,880
Speaker 1: fifties sixty percent of you know the market. Um. Importantly,

191
00:10:16,880 --> 00:10:21,000
Speaker 1: that's in part because they've been investing in their plant

192
00:10:21,000 --> 00:10:25,120
Speaker 1: and equipment, investing in their technology, UM, investing in you know,

193
00:10:25,200 --> 00:10:28,560
Speaker 1: branch refreshes, et cetera. And not that other institutions haven't either,

194
00:10:28,679 --> 00:10:35,160
Speaker 1: But brand matters, advertising matters, national reach matters, and these

195
00:10:35,160 --> 00:10:38,040
Speaker 1: are things that are you know, working to the advantage

196
00:10:38,080 --> 00:10:40,040
Speaker 1: of some of the larger institutions. But can you just

197
00:10:40,080 --> 00:10:41,600
Speaker 1: give us a hand to help us out with something

198
00:10:41,600 --> 00:10:44,600
Speaker 1: that a lot of people find difficult to understand, and

199
00:10:44,640 --> 00:10:48,000
Speaker 1: that's the relationship between treasury yields and what should and

200
00:10:48,040 --> 00:10:50,880
Speaker 1: shouldn't happen with bank stocks. What we've seen over the

201
00:10:50,960 --> 00:10:53,920
Speaker 1: last year or so, is this the yield curve narrows,

202
00:10:53,920 --> 00:10:57,640
Speaker 1: flattens bank stocks roll over, But at the same time,

203
00:10:57,840 --> 00:11:00,440
Speaker 1: net interest margins are not getting narrow that they've been

204
00:11:00,440 --> 00:11:04,960
Speaker 1: getting wider. We misunderstanding the relationship and how that's evolved

205
00:11:04,960 --> 00:11:06,800
Speaker 1: over the last ten years between what happens with the

206
00:11:06,880 --> 00:11:09,959
Speaker 1: yield curve and what happens with bank profitability. Well, it's

207
00:11:09,960 --> 00:11:11,800
Speaker 1: a great question, and I think one of the things

208
00:11:11,800 --> 00:11:14,280
Speaker 1: that's happened over the past decade or so is that,

209
00:11:14,360 --> 00:11:18,840
Speaker 1: you know, bank um business mix has widened out a

210
00:11:18,880 --> 00:11:20,880
Speaker 1: little bit, right. I mean, you go back ten years

211
00:11:20,880 --> 00:11:25,280
Speaker 1: ago and you had companies that were just broker dealers

212
00:11:25,400 --> 00:11:29,080
Speaker 1: or companies that were very heavily skewed towards you know,

213
00:11:29,200 --> 00:11:32,040
Speaker 1: corporate or consumer, and now you've got more of a mix.

214
00:11:32,480 --> 00:11:37,880
Speaker 1: In an addition, you do have a bigger portion of

215
00:11:37,960 --> 00:11:42,920
Speaker 1: the deposits in some organizations coming from consumer deposits. And

216
00:11:42,960 --> 00:11:46,000
Speaker 1: then the last thing I would highlight is the yield

217
00:11:46,040 --> 00:11:50,640
Speaker 1: curve flattens that that does pressure certain parts of their business.

218
00:11:50,679 --> 00:11:54,840
Speaker 1: But what I think the market forgets is that banks

219
00:11:55,120 --> 00:11:59,200
Speaker 1: benefit from non interest bearing deposits, and noninterestparing deposits are

220
00:11:59,240 --> 00:12:03,280
Speaker 1: as much as about of your average earning assets. So

221
00:12:03,800 --> 00:12:05,959
Speaker 1: you know, really the not only the shape of the

222
00:12:06,000 --> 00:12:08,280
Speaker 1: curve matters, but the absolute level of rates. And when

223
00:12:08,320 --> 00:12:10,640
Speaker 1: the front end of the curve is at two forty,

224
00:12:11,080 --> 00:12:14,000
Speaker 1: you have and you have twenty of your your average

225
00:12:14,000 --> 00:12:18,000
Speaker 1: earning assets funded by zero percent cost of funds. I

226
00:12:18,040 --> 00:12:20,640
Speaker 1: think that's the piece that the market forgots so deposit

227
00:12:20,640 --> 00:12:23,320
Speaker 1: by the restate really low and we have this essentially,

228
00:12:23,360 --> 00:12:25,160
Speaker 1: we have this free funding and you can then lend

229
00:12:25,200 --> 00:12:27,440
Speaker 1: it out. And making this sound very simplistic, but you

230
00:12:27,440 --> 00:12:28,800
Speaker 1: can make a lot of money that way. And I'm

231
00:12:28,840 --> 00:12:31,440
Speaker 1: just wondering whether the sensitivity to the yield curve has

232
00:12:31,520 --> 00:12:33,480
Speaker 1: changed quite radically over the last ten years. To what

233
00:12:33,559 --> 00:12:35,880
Speaker 1: degree is that true? But say, I think on a

234
00:12:35,920 --> 00:12:40,120
Speaker 1: bank by bank basis, there's some evidence of that. UM

235
00:12:40,160 --> 00:12:43,960
Speaker 1: As a system overall, what we've seen is as these

236
00:12:44,040 --> 00:12:48,680
Speaker 1: rate cycles UM you know, continue, you get you actually

237
00:12:48,679 --> 00:12:50,640
Speaker 1: have had a build up over the last ten years

238
00:12:50,679 --> 00:12:54,680
Speaker 1: in liquidity, and that liquidity is relatively cheap for banks.

239
00:12:54,679 --> 00:12:58,040
Speaker 1: So that's my answer to your question. Let's see, thank

240
00:12:58,080 --> 00:13:15,080
Speaker 1: you really appreciated one of our joys. There's guests that

241
00:13:15,120 --> 00:13:17,080
Speaker 1: we see every spring meeting of the I Am of

242
00:13:17,160 --> 00:13:20,839
Speaker 1: Jacob Frankel, with us tomorrow, among others, Catherine Man of

243
00:13:20,960 --> 00:13:23,400
Speaker 1: City Group we are thrilled to have with us now,

244
00:13:23,440 --> 00:13:26,600
Speaker 1: William Lee with the Milken Institute, with City Group for years,

245
00:13:26,640 --> 00:13:30,000
Speaker 1: and of course is public service at the International Monetary

246
00:13:30,040 --> 00:13:32,640
Speaker 1: Fund as well. Bill, I want to go back to

247
00:13:32,679 --> 00:13:35,000
Speaker 1: first principles, and we saw it a bit overnight with

248
00:13:35,040 --> 00:13:39,320
Speaker 1: President Trump tweeting on the evil trade of Europe as well.

249
00:13:39,720 --> 00:13:44,720
Speaker 1: Exactly how mercantilist, How seventeenth century are these I m

250
00:13:44,800 --> 00:13:47,000
Speaker 1: F meetings. The I m F meetings is like a

251
00:13:47,040 --> 00:13:49,240
Speaker 1: gathering of the masters of economists. And I think one

252
00:13:49,240 --> 00:13:52,400
Speaker 1: of the differences between golf and economics is that here

253
00:13:52,520 --> 00:13:55,440
Speaker 1: we have a bipolar world. The International Entrey Fund is

254
00:13:55,480 --> 00:14:01,080
Speaker 1: a edifice of multilateralism. And so we are all at

255
00:14:01,080 --> 00:14:03,040
Speaker 1: the I m F worried about why it is that

256
00:14:03,120 --> 00:14:06,120
Speaker 1: President Trump is so bilateral, but the domestic economists here

257
00:14:06,120 --> 00:14:08,240
Speaker 1: in the US are getting more and more bilattle, and

258
00:14:08,280 --> 00:14:10,760
Speaker 1: President Trump is saying to the world, you know, I'm

259
00:14:10,760 --> 00:14:13,520
Speaker 1: gonna bash down the bilateral deficit with China. They're gonna

260
00:14:13,559 --> 00:14:16,000
Speaker 1: bash down the bilattal deficit with the EU, and and

261
00:14:16,080 --> 00:14:19,080
Speaker 1: this kind of bashing down to bilateral deficits and and

262
00:14:19,080 --> 00:14:22,760
Speaker 1: and surpluses is doing nothing but just keeping that aggregate

263
00:14:23,040 --> 00:14:25,640
Speaker 1: common account deficit as big as it always was. So

264
00:14:25,640 --> 00:14:27,720
Speaker 1: so it's a it's a full game in part. But

265
00:14:27,840 --> 00:14:30,200
Speaker 1: I think President Trump has got onto something because he's

266
00:14:30,200 --> 00:14:33,000
Speaker 1: trying to say, we need to restructure our economy so

267
00:14:33,040 --> 00:14:36,480
Speaker 1: that we can compete with our biggest competitors, China and

268
00:14:36,560 --> 00:14:41,760
Speaker 1: the EU. But do we overestimate our fear of their wealth,

269
00:14:42,080 --> 00:14:46,040
Speaker 1: our fear of their growing incomes. Do we overestimate the

270
00:14:46,080 --> 00:14:51,360
Speaker 1: demographic economics of China? Absolutely, Tom, Just as we overestimated

271
00:14:51,960 --> 00:14:54,400
Speaker 1: the Soviet Union and what a huge power it was

272
00:14:54,440 --> 00:14:56,240
Speaker 1: supposed to be and it turned out that they were not.

273
00:14:56,880 --> 00:14:58,960
Speaker 1: China may well be that. But one thing we know

274
00:14:59,000 --> 00:15:03,200
Speaker 1: about China is that their intellectual powerhouse, their intellectual capital,

275
00:15:03,280 --> 00:15:05,840
Speaker 1: was trained at might Teach, Health Tech and Stanford and

276
00:15:05,840 --> 00:15:07,720
Speaker 1: and these are the places that that we have a

277
00:15:07,760 --> 00:15:10,520
Speaker 1: handle on. So we know that China is in fact

278
00:15:10,600 --> 00:15:13,760
Speaker 1: pushing the frontier out and it's up to us to

279
00:15:13,800 --> 00:15:16,320
Speaker 1: develop our own intellectual capital, our own technology is to

280
00:15:16,360 --> 00:15:19,479
Speaker 1: be able to compete. But let's just assume that the

281
00:15:19,480 --> 00:15:21,800
Speaker 1: resolution with China is a positive one, the outcome is

282
00:15:21,840 --> 00:15:26,440
Speaker 1: a good one. Let's move on to Europe. What happens next? Boy, John,

283
00:15:26,480 --> 00:15:28,440
Speaker 1: You know I as an ugly American and as someone

284
00:15:28,480 --> 00:15:30,280
Speaker 1: who was the head of the German desk when I

285
00:15:30,280 --> 00:15:32,880
Speaker 1: was at the I M f uh. They used to say, Bill,

286
00:15:32,960 --> 00:15:34,960
Speaker 1: when you got up Europe, it's like John Wayne walking

287
00:15:34,960 --> 00:15:37,400
Speaker 1: down the Chan's else. And I have to say that

288
00:15:37,520 --> 00:15:40,880
Speaker 1: Europe is such a morass of structural problems that they

289
00:15:40,920 --> 00:15:43,840
Speaker 1: barely can get a one handle on growth. And so

290
00:15:43,840 --> 00:15:46,280
Speaker 1: so when you talk about all these issues of Brexit

291
00:15:46,400 --> 00:15:50,040
Speaker 1: and and continental Europe and the banking system uh at

292
00:15:50,040 --> 00:15:52,640
Speaker 1: Italy going to default, I think this to me, that's

293
00:15:52,640 --> 00:15:57,320
Speaker 1: just characteristic of what you're really is slow growth full stop,

294
00:15:57,640 --> 00:16:00,880
Speaker 1: whereas China and US has still will have the potential

295
00:16:00,960 --> 00:16:04,280
Speaker 1: for high digit growth. That's what I worry about, battle

296
00:16:04,280 --> 00:16:06,200
Speaker 1: that China can respond to a tried dispute with the

297
00:16:06,280 --> 00:16:08,880
Speaker 1: United States. I've really struggle to say how the Europeans

298
00:16:08,920 --> 00:16:11,720
Speaker 1: can the Chinese can inject some stiminus into the economy.

299
00:16:12,040 --> 00:16:15,920
Speaker 1: Monasty policy in Europe looks totally exhausted, Fiscal policy looks

300
00:16:15,920 --> 00:16:20,920
Speaker 1: incredibly constrained. What do they do? The old retort of

301
00:16:21,080 --> 00:16:24,720
Speaker 1: I M F policy prescription, structural change and guess what,

302
00:16:24,880 --> 00:16:26,640
Speaker 1: that's the last thing they ever do. In fact, they

303
00:16:26,680 --> 00:16:29,440
Speaker 1: never get to it. So I I honestly believe that

304
00:16:29,480 --> 00:16:31,680
Speaker 1: if I were a global investor, the last place I've

305
00:16:31,680 --> 00:16:34,680
Speaker 1: been look into Europe. Well, if you're a global investor

306
00:16:34,880 --> 00:16:37,600
Speaker 1: and your name is Prime Minister Mayor David Davies is

307
00:16:37,800 --> 00:16:40,760
Speaker 1: just making headlines right now in the Telegraph. I mean,

308
00:16:41,000 --> 00:16:43,280
Speaker 1: is the United Kingdom wrong to say, you know, we

309
00:16:43,400 --> 00:16:45,640
Speaker 1: just really don't want to go down that road. The

310
00:16:45,720 --> 00:16:48,600
Speaker 1: United Kingdom, in some ways it's very special because London

311
00:16:48,800 --> 00:16:52,920
Speaker 1: is still a global capital market, is global uh place

312
00:16:52,960 --> 00:16:56,440
Speaker 1: where global investors go to allocate their funds, and and

313
00:16:57,040 --> 00:16:59,200
Speaker 1: whether it's tied to Europe but tied to the rest

314
00:16:59,240 --> 00:17:01,320
Speaker 1: of the world in some out of the way Europe,

315
00:17:01,760 --> 00:17:04,040
Speaker 1: the UK is gonna do quite well in and of itself.

316
00:17:04,160 --> 00:17:07,399
Speaker 1: Trouble is, the UK is more than just London, and

317
00:17:07,400 --> 00:17:10,400
Speaker 1: and the other parts of the UK have to start

318
00:17:10,400 --> 00:17:12,879
Speaker 1: to fall in line with the same problems that's facing Europe,

319
00:17:12,880 --> 00:17:15,960
Speaker 1: which is they've got structural problems. The technology, for example,

320
00:17:15,960 --> 00:17:17,840
Speaker 1: in the UK, UK used to be the best air

321
00:17:18,280 --> 00:17:20,600
Speaker 1: jet engine makers in the world with Rose Royce. They

322
00:17:20,640 --> 00:17:23,480
Speaker 1: have lost that edge. But let's talk about a service sector,

323
00:17:23,480 --> 00:17:25,880
Speaker 1: shall we and what's gonna happen next in the UK?

324
00:17:26,240 --> 00:17:29,320
Speaker 1: What has happened with services? I barely have a herit discussed.

325
00:17:30,400 --> 00:17:33,240
Speaker 1: When was the last time you worried about insurance from Lloyd's?

326
00:17:34,080 --> 00:17:37,320
Speaker 1: I mean, you know they again? I think, uh, the

327
00:17:37,359 --> 00:17:40,399
Speaker 1: service sector and everything else in the euro in the

328
00:17:40,520 --> 00:17:43,480
Speaker 1: UK has to modernize. When was the last time a

329
00:17:43,560 --> 00:17:46,360
Speaker 1: hit movie was made in the UK? US right now

330
00:17:46,480 --> 00:17:50,160
Speaker 1: has compared advantage in the export of services. Uh, Marvel

331
00:17:50,240 --> 00:17:53,160
Speaker 1: comic movies and and and and all these these these

332
00:17:53,200 --> 00:17:57,080
Speaker 1: these uh Disney productions. They are flooding the world. And

333
00:17:57,119 --> 00:17:58,879
Speaker 1: I think the UK has got to get up with

334
00:17:59,720 --> 00:18:02,680
Speaker 1: gett and speed with doing exactly that. What has been

335
00:18:02,720 --> 00:18:05,359
Speaker 1: clear Bill over the last few months that Europe is

336
00:18:05,400 --> 00:18:08,320
Speaker 1: incredibly divided about how to deal with the Brexit situation.

337
00:18:08,680 --> 00:18:11,640
Speaker 1: Tom earlier bringing up the example of Emmanuel Macron trying

338
00:18:11,680 --> 00:18:13,720
Speaker 1: to play to the audience back home, trying to hold

339
00:18:13,760 --> 00:18:16,560
Speaker 1: things up. If you can't get the whole of Europe

340
00:18:16,560 --> 00:18:18,160
Speaker 1: to agree, how on earth did we get the whole

341
00:18:18,160 --> 00:18:20,199
Speaker 1: of Europe to agree and to get the UK to

342
00:18:20,240 --> 00:18:22,960
Speaker 1: agree to the same thing. You just repeated exactly what

343
00:18:23,040 --> 00:18:25,200
Speaker 1: we were saying before, which is, uh, He's going to

344
00:18:25,600 --> 00:18:27,919
Speaker 1: Europe as an ugly American. I've got to say, Europe

345
00:18:27,960 --> 00:18:29,960
Speaker 1: is in a thousand year war and it's going to

346
00:18:30,000 --> 00:18:33,600
Speaker 1: continue the next thousand years, I think, battling tribalism. So

347
00:18:33,640 --> 00:18:35,600
Speaker 1: what can Madame Legard do about does? I mean, you know,

348
00:18:35,600 --> 00:18:39,720
Speaker 1: we come down here, happy talk interviews Madame Legarde later today,

349
00:18:39,720 --> 00:18:43,520
Speaker 1: Bill ye. But what can a multilateral institution do given

350
00:18:43,520 --> 00:18:46,800
Speaker 1: these fractured relationships. I think the best we can do

351
00:18:46,920 --> 00:18:50,040
Speaker 1: is to recognize that countries are countries and there are

352
00:18:50,240 --> 00:18:53,320
Speaker 1: national objectives. So does Brussels matter? I mean, this is

353
00:18:53,400 --> 00:18:57,760
Speaker 1: perfect overnight, Charles de Gaulle angel a miracle. They matter,

354
00:18:58,000 --> 00:19:00,760
Speaker 1: Brussels doesn't matter. Brussels has got get out of the way,

355
00:19:00,800 --> 00:19:02,560
Speaker 1: just as Washington's gotta get out of the way. And

356
00:19:02,600 --> 00:19:05,800
Speaker 1: I think get letting, letting an entrepreneurship and private sector

357
00:19:05,840 --> 00:19:08,439
Speaker 1: take hold in Europe is the biggest challenge yet to

358
00:19:08,840 --> 00:19:10,880
Speaker 1: great comments, Billy, thank you so much with the Milk

359
00:19:10,960 --> 00:19:26,640
Speaker 1: and Institute, Johnny, you know, to get to our controversial

360
00:19:26,720 --> 00:19:30,800
Speaker 1: and steam guests here. Now, let me just say that, John,

361
00:19:31,240 --> 00:19:33,560
Speaker 1: about the time claims were back where they were in

362
00:19:33,600 --> 00:19:36,800
Speaker 1: October of sixty nine. The hit that Steve Moore was

363
00:19:36,840 --> 00:19:41,879
Speaker 1: listening to was suspicious minds. What's it it really? And

364
00:19:41,920 --> 00:19:44,440
Speaker 1: what a number it is? As well. I'm really pleased

365
00:19:44,440 --> 00:19:47,080
Speaker 1: to say that Stephen Moore joined us now distinguished Visiting

366
00:19:47,119 --> 00:19:50,640
Speaker 1: Fellow at the Heritage Foundation, and we assume the presuming

367
00:19:50,680 --> 00:19:54,800
Speaker 1: President Trump choice for a seat on the Federal Reserve. Steve,

368
00:19:54,880 --> 00:19:58,840
Speaker 1: did you ever think you'd become this controversial? Well, no,

369
00:19:59,119 --> 00:20:02,560
Speaker 1: I didn't. I I'm sort of surprised by the by

370
00:20:02,680 --> 00:20:06,680
Speaker 1: the resistance by the left to my nomination. But it's

371
00:20:06,680 --> 00:20:08,760
Speaker 1: going fine, and you know, I'm well, I'm doing well

372
00:20:08,800 --> 00:20:12,680
Speaker 1: with the Senators, and so this is going to happen. Um.

373
00:20:12,720 --> 00:20:15,959
Speaker 1: You know, I do have some controversial views I'm in

374
00:20:16,080 --> 00:20:17,600
Speaker 1: terms of what I want to do with the FED.

375
00:20:17,640 --> 00:20:20,760
Speaker 1: I feel very strongly about more transparency at the FED.

376
00:20:20,880 --> 00:20:23,600
Speaker 1: I think there should be more openness and sunlight about

377
00:20:23,600 --> 00:20:27,200
Speaker 1: how the FED operates. Um. I do believe that maybe

378
00:20:27,200 --> 00:20:30,200
Speaker 1: this is controversial, maybe it's not. I believe, as as

379
00:20:30,480 --> 00:20:33,240
Speaker 1: Donald Trump believes and and Larry Cudlow believes, that growth

380
00:20:33,320 --> 00:20:36,200
Speaker 1: does not cause inflation. I'll say that again, growth does

381
00:20:36,240 --> 00:20:38,320
Speaker 1: not cause inflation. I think there are too many people

382
00:20:38,320 --> 00:20:40,560
Speaker 1: at the FED, and too many people find in the

383
00:20:40,600 --> 00:20:43,200
Speaker 1: financial industry who believe that every time we get growth,

384
00:20:43,280 --> 00:20:45,880
Speaker 1: sometimes we have to pull that back because it causes inflation.

385
00:20:45,880 --> 00:20:48,480
Speaker 1: If you have an increase in goods and services, prices fall,

386
00:20:48,560 --> 00:20:51,320
Speaker 1: they don't rise. We'll get to the economics. Just to

387
00:20:51,320 --> 00:20:55,240
Speaker 1: get to the process quickly. Yeah, when does it become official? Well,

388
00:20:55,280 --> 00:20:58,199
Speaker 1: I have to go through an FBI clearance and I

389
00:20:58,240 --> 00:21:01,480
Speaker 1: have to also do a financial disclosure that could take

390
00:21:02,040 --> 00:21:04,159
Speaker 1: I don't know exactly how long it'll take for that

391
00:21:04,200 --> 00:21:07,040
Speaker 1: to be completed, maybe a month. And so the way

392
00:21:07,119 --> 00:21:10,879
Speaker 1: this process works is that you're formally nominated once you've

393
00:21:11,119 --> 00:21:15,200
Speaker 1: gone through the clearance. So what was unusual is that

394
00:21:14,960 --> 00:21:18,720
Speaker 1: that this story kind of got out before. Usually you'd

395
00:21:18,760 --> 00:21:22,000
Speaker 1: go through the clearance first and then be nominated. So

396
00:21:23,040 --> 00:21:26,480
Speaker 1: Steve Moore of the uproar over your candidacy to be

397
00:21:26,560 --> 00:21:29,879
Speaker 1: with the FED is about theory as well. Let us

398
00:21:29,960 --> 00:21:33,080
Speaker 1: begin with the defense of supply side theory. There are

399
00:21:33,160 --> 00:21:36,280
Speaker 1: many that push against it. In much of what they

400
00:21:36,320 --> 00:21:42,240
Speaker 1: say is we don't have tangible evidence that growth doesn't

401
00:21:42,400 --> 00:21:47,879
Speaker 1: harm fiscal trajectories. Growth, How do we get growth and

402
00:21:47,960 --> 00:21:51,480
Speaker 1: a better debt and a better deficit well, look, I

403
00:21:51,480 --> 00:21:53,960
Speaker 1: mean supply side. I am a supply sider. I believe

404
00:21:54,000 --> 00:21:56,360
Speaker 1: the way to grow the economy has increased the supply

405
00:21:56,440 --> 00:21:59,520
Speaker 1: of goods and services and increase employment. And by the way,

406
00:21:59,520 --> 00:22:02,199
Speaker 1: I mean, as there ever been a better vindication of

407
00:22:02,280 --> 00:22:05,240
Speaker 1: supply side economics than the last two years when all

408
00:22:05,280 --> 00:22:08,360
Speaker 1: the liberal remember when Trump was elected, all the all

409
00:22:08,400 --> 00:22:10,080
Speaker 1: the his critics that he was going to cause a

410
00:22:10,080 --> 00:22:12,679
Speaker 1: second great depression. Remember, and this is gonna be the

411
00:22:12,800 --> 00:22:15,240
Speaker 1: you know, the worst financial meltdown in history if he

412
00:22:15,320 --> 00:22:17,840
Speaker 1: was elected. And of course just the opposite has happened

413
00:22:17,840 --> 00:22:20,080
Speaker 1: where we now have, uh, you know, we have markets

414
00:22:20,160 --> 00:22:22,560
Speaker 1: up some since he was elected. We have a very

415
00:22:22,560 --> 00:22:25,560
Speaker 1: strong economy. And I think the tax cuts had I'm

416
00:22:25,600 --> 00:22:27,320
Speaker 1: I'm totally proud of the tax cuts. I mean, has

417
00:22:27,359 --> 00:22:30,199
Speaker 1: there ever been a policy that's worked so rapidly and

418
00:22:30,240 --> 00:22:33,320
Speaker 1: so effectively as the tax I'm gonna take it over.

419
00:22:33,359 --> 00:22:35,040
Speaker 1: The fifth was like the phone ring in their folks,

420
00:22:35,080 --> 00:22:40,159
Speaker 1: was Herman Kane online to um Steve. I want to

421
00:22:40,200 --> 00:22:43,400
Speaker 1: talk Steve more about the expansion of the Dutton deficit.

422
00:22:43,480 --> 00:22:46,679
Speaker 1: My chart for chart of the year last year was

423
00:22:46,720 --> 00:22:50,080
Speaker 1: the twin deficits, the trade deficit, the president so concerned

424
00:22:50,119 --> 00:22:54,360
Speaker 1: with and also the growing fiscal deficit. Isn't the price

425
00:22:54,520 --> 00:22:58,320
Speaker 1: of a supply side cud Lot Moore theory at some

426
00:22:58,480 --> 00:23:02,480
Speaker 1: point all of the eighties, that debt and deficit catches

427
00:23:02,560 --> 00:23:05,879
Speaker 1: up with us. Well, look, I think what's most important

428
00:23:06,040 --> 00:23:08,719
Speaker 1: is how I am a depsit hawk by you. You

429
00:23:08,760 --> 00:23:10,840
Speaker 1: go back to the last twenty five years, I don't

430
00:23:10,840 --> 00:23:13,879
Speaker 1: think I look, well, let me make this point. I

431
00:23:13,920 --> 00:23:15,879
Speaker 1: mean it's a very important one. I don't think you can.

432
00:23:16,000 --> 00:23:19,480
Speaker 1: I challenge you to find anyone, anyone in Washington who

433
00:23:19,480 --> 00:23:22,480
Speaker 1: has wanted to cut government spending more than me. I mean, really,

434
00:23:22,600 --> 00:23:24,760
Speaker 1: I don't think you Since I was twenty five years

435
00:23:24,760 --> 00:23:26,439
Speaker 1: old I came to this town, I was the youngest.

436
00:23:26,480 --> 00:23:32,720
Speaker 1: But our listeners, we have to cut governments. Okay, everyone

437
00:23:32,760 --> 00:23:34,680
Speaker 1: knows we have to cut government spending. By the way,

438
00:23:34,680 --> 00:23:37,320
Speaker 1: it's not a Republican or Democrat thing. Both parties want

439
00:23:37,359 --> 00:23:39,800
Speaker 1: to speak way too much money. You will enter the

440
00:23:39,880 --> 00:23:42,879
Speaker 1: FED with the reality of a vector on the twin

441
00:23:42,960 --> 00:23:46,720
Speaker 1: deficits that take us back to middle Reagan? Can we

442
00:23:46,840 --> 00:23:51,000
Speaker 1: sustain that with supply side theory? If the economy is growing,

443
00:23:51,000 --> 00:23:52,840
Speaker 1: the most important thing about the debtist make sure, the

444
00:23:52,880 --> 00:23:55,000
Speaker 1: economy is growing faster than the debt. I think you

445
00:23:55,240 --> 00:23:57,560
Speaker 1: all agree on that. And you know, if you if

446
00:23:57,560 --> 00:23:59,600
Speaker 1: we stayed on the course that we had been on

447
00:23:59,720 --> 00:24:02,359
Speaker 1: for the previous ten years, where the economy was growing

448
00:24:02,359 --> 00:24:05,280
Speaker 1: at one point at one point nine percent, that's not sustainable.

449
00:24:05,359 --> 00:24:08,440
Speaker 1: The debt is going to cycle out of control. We

450
00:24:08,480 --> 00:24:11,679
Speaker 1: have increased the growth rate from one point five percent

451
00:24:11,840 --> 00:24:14,919
Speaker 1: in Obama's last year two over three percent. Now, I

452
00:24:14,920 --> 00:24:18,040
Speaker 1: mean that's a that's an incredible record in two years.

453
00:24:18,280 --> 00:24:20,600
Speaker 1: So you get that economy growing at three percent on

454
00:24:20,640 --> 00:24:23,399
Speaker 1: a suspeninable level, you're gonna level off debt as a

455
00:24:23,440 --> 00:24:25,960
Speaker 1: share GDP, and over time the debt is going to

456
00:24:26,080 --> 00:24:29,160
Speaker 1: be reduced as a percentage GDP. But we do have

457
00:24:29,240 --> 00:24:31,800
Speaker 1: to cut government spending. There's no doubt about it. There's

458
00:24:31,840 --> 00:24:34,680
Speaker 1: no argument there. Government spending is way way too high.

459
00:24:34,760 --> 00:24:36,879
Speaker 1: We have to do something about the entitlements. We have

460
00:24:36,960 --> 00:24:40,040
Speaker 1: to do something about bringing down the domestic spending, and

461
00:24:40,280 --> 00:24:42,280
Speaker 1: even the military. I think we spending too much money,

462
00:24:42,480 --> 00:24:45,600
Speaker 1: frankly on the military. We have to cut Everyone knows that.

463
00:24:45,640 --> 00:24:47,520
Speaker 1: The problem. I mean even you know it's not a

464
00:24:47,560 --> 00:24:49,960
Speaker 1: revenue problem, right, We have more revenues in two thousand

465
00:24:50,000 --> 00:24:53,440
Speaker 1: eighteen than any time in history. It is a spending problem. Well,

466
00:24:53,880 --> 00:24:55,560
Speaker 1: a lot of people listening right I mean, do not

467
00:24:55,640 --> 00:24:59,240
Speaker 1: do you people listening to this problem right now are

468
00:24:59,240 --> 00:25:03,320
Speaker 1: gonna be a sealing that three it's a story of yesteryear.

469
00:25:03,800 --> 00:25:06,880
Speaker 1: It has been and gone. Three percent is no longer sustainable.

470
00:25:07,280 --> 00:25:09,800
Speaker 1: Projections that we see from the economists that join us

471
00:25:09,800 --> 00:25:12,320
Speaker 1: on this program, most of them have two handles. Why

472
00:25:12,359 --> 00:25:14,440
Speaker 1: are they wrong? Why you? Because these are the same

473
00:25:14,480 --> 00:25:16,840
Speaker 1: people said I mean, you know, I don't know who

474
00:25:16,880 --> 00:25:18,639
Speaker 1: you're talking to, but you know all the people at

475
00:25:18,640 --> 00:25:20,600
Speaker 1: the New York Times and the Washington Post and so

476
00:25:20,680 --> 00:25:22,919
Speaker 1: on are the same people who two years ago, go

477
00:25:23,000 --> 00:25:24,879
Speaker 1: back and read what they said when if Donald Trump

478
00:25:24,960 --> 00:25:27,560
Speaker 1: is elected. We are going to journalist Steve, I'm talking

479
00:25:27,560 --> 00:25:30,840
Speaker 1: to economists who are forecasting, on average, the estimate that

480
00:25:30,880 --> 00:25:33,000
Speaker 1: we're looking at, the median estimate in our Bloomberg Serve

481
00:25:33,000 --> 00:25:36,400
Speaker 1: at one point nine. Let's assume they're wrong. You're right

482
00:25:36,480 --> 00:25:38,960
Speaker 1: that we get three percent. Hold on, I'm not saying

483
00:25:39,000 --> 00:25:41,240
Speaker 1: that we are going to get. What I'm saying is

484
00:25:41,280 --> 00:25:43,520
Speaker 1: we have the rights if we have the right set

485
00:25:43,520 --> 00:25:46,960
Speaker 1: of policy. Place is policies in place. Look, we have

486
00:25:47,040 --> 00:25:50,840
Speaker 1: created an incredibly pro growth, pro business atmosphere with the

487
00:25:50,880 --> 00:25:54,119
Speaker 1: reduction and tax rates, right with the reduction and regulation,

488
00:25:54,359 --> 00:25:57,119
Speaker 1: with the pro American energy policies and other pro business

489
00:25:57,200 --> 00:26:00,520
Speaker 1: policies we've got. Now, my problem has been, I do

490
00:26:00,680 --> 00:26:03,240
Speaker 1: think over the last four months or so, the FED

491
00:26:03,320 --> 00:26:06,480
Speaker 1: has been too tight. They've looked at this economic growth

492
00:26:06,680 --> 00:26:08,600
Speaker 1: and they felt like they've had to pull it back.

493
00:26:08,640 --> 00:26:11,520
Speaker 1: And my point is, growth does not inflation. Let's get

494
00:26:11,520 --> 00:26:13,760
Speaker 1: a little practice here and you going before the Senate,

495
00:26:13,840 --> 00:26:16,760
Speaker 1: the House, and everybody else and at Washington. The fact

496
00:26:16,840 --> 00:26:18,800
Speaker 1: is they're gonna tell you it's a guilded age. You're

497
00:26:18,840 --> 00:26:21,800
Speaker 1: gonna say it heritage, that it's a lackey in America,

498
00:26:21,920 --> 00:26:26,280
Speaker 1: every man for himself. How does Steve Moore define the

499
00:26:26,359 --> 00:26:29,919
Speaker 1: income and the wealth wealth inequality that we saw for

500
00:26:29,960 --> 00:26:34,080
Speaker 1: example yesterday between Mr Diamond and the congresswoman from Harlem.

501
00:26:34,080 --> 00:26:36,959
Speaker 1: How do you define this guilded age? And what are

502
00:26:36,960 --> 00:26:38,840
Speaker 1: you gonna do about it? I love growth, I mean

503
00:26:38,840 --> 00:26:42,199
Speaker 1: I I'm for growth. I'm for growth for Mr Diamond

504
00:26:42,240 --> 00:26:46,200
Speaker 1: or by the way, you call us a guilded age.

505
00:26:46,480 --> 00:26:49,359
Speaker 1: Wait a minute, you've seen the statistics for the first

506
00:26:49,680 --> 00:26:53,280
Speaker 1: we not only have we had the strongest wage growth

507
00:26:53,320 --> 00:26:56,240
Speaker 1: for American workers in fifteen years, but according to the

508
00:26:56,240 --> 00:26:59,400
Speaker 1: Wall Street Journal just two weeks ago, the biggest wage

509
00:26:59,440 --> 00:27:02,000
Speaker 1: gains in the American economy. You guys know this. The

510
00:27:02,000 --> 00:27:04,159
Speaker 1: biggest wage gains have going to the kind of the

511
00:27:04,200 --> 00:27:08,639
Speaker 1: lowest income, lowest skilled workers. So that's reducing income into quality,

512
00:27:08,640 --> 00:27:10,240
Speaker 1: it's not raising it. We've got a minute left. I

513
00:27:10,240 --> 00:27:12,040
Speaker 1: need to went through some really quick questions. I need

514
00:27:12,119 --> 00:27:15,680
Speaker 1: some quick answers. WHI is FED independence so important? FED

515
00:27:15,720 --> 00:27:18,679
Speaker 1: independence is important because we don't want politicians making the

516
00:27:18,720 --> 00:27:20,760
Speaker 1: decisions about what the FED should be doing. It should

517
00:27:20,760 --> 00:27:23,720
Speaker 1: be made by professionals. But that doesn't mean everyone has

518
00:27:23,760 --> 00:27:25,840
Speaker 1: to be a PhD economist. I love the fact that

519
00:27:25,880 --> 00:27:29,000
Speaker 1: Herman Kane is going to the FED. Practically agree with

520
00:27:29,040 --> 00:27:32,360
Speaker 1: that state absolutely. Next question is if the perceived independence

521
00:27:32,400 --> 00:27:35,080
Speaker 1: of the Federal Reserve is damaged by your nomination, are

522
00:27:35,080 --> 00:27:37,440
Speaker 1: you willing to withdraw? Well, how would it be. It's

523
00:27:37,480 --> 00:27:42,720
Speaker 1: not going to be. I'm i am independent. Perception of

524
00:27:42,800 --> 00:27:45,960
Speaker 1: the independence. You have to read My book is very

525
00:27:45,960 --> 00:27:48,360
Speaker 1: clear trump Anomics. People have to read it. They don't

526
00:27:48,400 --> 00:27:50,600
Speaker 1: know what they're talking about I've been very critical of

527
00:27:50,640 --> 00:27:52,719
Speaker 1: Donald Trump on a lot of issues on trade, and

528
00:27:52,760 --> 00:27:54,920
Speaker 1: I think he's spending too much money. So I will

529
00:27:54,960 --> 00:27:57,359
Speaker 1: be independent of him, but I also agree with a

530
00:27:57,400 --> 00:27:58,760
Speaker 1: lot of things that he's done, and I'm not gonna

531
00:27:58,760 --> 00:28:02,760
Speaker 1: apologize for that. I help they adjenda together. Stephen Moore,

532
00:28:02,880 --> 00:28:05,280
Speaker 1: great to catch out with you. Thank you got fiery Tom.

533
00:28:05,359 --> 00:28:08,080
Speaker 1: I wish I had a bit more time to time.

534
00:28:08,160 --> 00:28:10,480
Speaker 1: Stephen wore Zone walkman for a solid hour, and we'll

535
00:28:10,520 --> 00:28:12,720
Speaker 1: go after this. Maybe we can get sixty minutes with

536
00:28:12,760 --> 00:28:14,200
Speaker 1: Stephen Moore and then we can get herm and trying

537
00:28:14,240 --> 00:28:15,560
Speaker 1: to join us as well, and we can just hash

538
00:28:15,600 --> 00:28:19,040
Speaker 1: it all out well. Is a tumultuous time, not only

539
00:28:19,040 --> 00:28:21,720
Speaker 1: for economic theory. What we missed their Stephen wore a

540
00:28:21,800 --> 00:28:26,840
Speaker 1: huge proponent of MMD same so Steve. Great to catch

541
00:28:26,880 --> 00:28:44,240
Speaker 1: out with you. Debbie Dingle is of course a congresswoman,

542
00:28:44,800 --> 00:28:47,440
Speaker 1: well known in Washington and of course in her Michigan,

543
00:28:47,880 --> 00:28:51,280
Speaker 1: a descendant of all of the body by Fisher people,

544
00:28:51,320 --> 00:28:54,200
Speaker 1: and she joins us this morning. Debbie, what was it

545
00:28:54,240 --> 00:28:56,520
Speaker 1: like to grow up in the extended and I do

546
00:28:56,600 --> 00:29:00,720
Speaker 1: mean extended Fisher family, I mean innovation? Was there from

547
00:29:00,720 --> 00:29:05,920
Speaker 1: the get go, wasn't it well, good morning and it

548
00:29:06,320 --> 00:29:12,040
Speaker 1: I mean, yes, it was. I mean for a long time, Michigan,

549
00:29:12,160 --> 00:29:16,520
Speaker 1: Southeast Michigan was known that probing it the forefront of innovation, technology,

550
00:29:16,600 --> 00:29:21,760
Speaker 1: trying to get the next design. Unfortunately, I think in

551
00:29:21,880 --> 00:29:28,320
Speaker 1: the seventies, uh, people began to, I don't want to say,

552
00:29:28,400 --> 00:29:31,880
Speaker 1: become lazy, but got settled in and you know, we

553
00:29:31,960 --> 00:29:34,719
Speaker 1: had some very tough times in the industry and people

554
00:29:35,440 --> 00:29:41,160
Speaker 1: realized that we weren't keeping current with some of the

555
00:29:41,240 --> 00:29:43,920
Speaker 1: times and some of the challenges. And since then, the

556
00:29:43,960 --> 00:29:47,040
Speaker 1: auto industry keeps going up and down in terms of

557
00:29:47,040 --> 00:29:50,400
Speaker 1: what's happened. And I fear that there's so many challenges

558
00:29:50,760 --> 00:29:54,440
Speaker 1: up there right now that we've got to make sure

559
00:29:54,560 --> 00:29:57,880
Speaker 1: that the US I wanted to be Southeast Michigan staying

560
00:29:57,920 --> 00:30:01,400
Speaker 1: at the forefront. And it the challenge right now. What

561
00:30:01,560 --> 00:30:03,640
Speaker 1: is the Dingle prescription to do that? We had a

562
00:30:03,680 --> 00:30:07,760
Speaker 1: president overnight begin to once again advance the idea of

563
00:30:07,840 --> 00:30:12,200
Speaker 1: trade discussions, let around automobiles in Europe as well there

564
00:30:12,320 --> 00:30:15,120
Speaker 1: boodle or whatever he said, trading partners as well. But

565
00:30:15,240 --> 00:30:19,960
Speaker 1: what is the Dingle prescription to jump start America back

566
00:30:20,000 --> 00:30:25,680
Speaker 1: to manufacturing excellence. Well, I don't, I actually don't. I

567
00:30:25,720 --> 00:30:28,400
Speaker 1: think one of the reasons that President Trump won and

568
00:30:28,440 --> 00:30:30,959
Speaker 1: I was one of the people that predicted it, is

569
00:30:31,000 --> 00:30:35,440
Speaker 1: because we had bad trade deals that didn't create a

570
00:30:35,520 --> 00:30:38,560
Speaker 1: level of playing field. So I don't think. I always

571
00:30:38,600 --> 00:30:41,040
Speaker 1: call it napsis to point because I want everybody to

572
00:30:41,120 --> 00:30:44,000
Speaker 1: understand what we're talking about. And actually at one point

573
00:30:43,800 --> 00:30:47,680
Speaker 1: out for the industry terribly. But you know, the faction

574
00:30:47,800 --> 00:30:52,640
Speaker 1: matter is and global climate is real. I mean we

575
00:30:52,760 --> 00:30:56,120
Speaker 1: see it happening every day, and other countries coron of

576
00:30:56,240 --> 00:31:02,200
Speaker 1: mandating electric vehicles, Western Europe mandating electric vehicles, India's mandating

577
00:31:02,600 --> 00:31:10,600
Speaker 1: electric vehicles, and our country is not encouraging, uh the development.

578
00:31:10,720 --> 00:31:14,680
Speaker 1: We don't have a the electricity infrastructure to support it.

579
00:31:14,720 --> 00:31:19,480
Speaker 1: And now the presidents actively taking shots at evs. That

580
00:31:19,560 --> 00:31:22,600
Speaker 1: sounds helpful because we're trading in the global marketplace. We've

581
00:31:22,600 --> 00:31:25,680
Speaker 1: got to have products that's gonna go there. Nor can

582
00:31:25,840 --> 00:31:28,719
Speaker 1: you know, I was really proud of the fact autunomos

583
00:31:28,760 --> 00:31:32,800
Speaker 1: nasals are also coming because there's consumer confidence issues. They

584
00:31:32,840 --> 00:31:35,560
Speaker 1: are creative them, but they're being built and they're gonna

585
00:31:35,560 --> 00:31:38,840
Speaker 1: be built in China, Western Europe and India again, and

586
00:31:39,000 --> 00:31:42,280
Speaker 1: we can't. The House unanimously and I am very proud

587
00:31:42,320 --> 00:31:47,080
Speaker 1: of this, unanimously passed out a committee and the Congress

588
00:31:47,120 --> 00:31:51,480
Speaker 1: a regulatory framework for those to be developed and explored.

589
00:31:51,600 --> 00:31:55,480
Speaker 1: Senate killed it, and you know, again we're standing still

590
00:31:55,640 --> 00:31:59,400
Speaker 1: there's not a regulatory framework for it. Yesterday several of

591
00:31:59,440 --> 00:32:03,040
Speaker 1: the companies A Toyot, Afford and Gentlemotors announced they were

592
00:32:03,120 --> 00:32:08,000
Speaker 1: forming up a consortium to study autonomousteo because one work

593
00:32:08,040 --> 00:32:10,560
Speaker 1: on them. But you know, this stuff's gonna happen. It's

594
00:32:10,560 --> 00:32:13,600
Speaker 1: gonna be built someplace. It's gonna be built someplace. Yeah,

595
00:32:14,160 --> 00:32:17,800
Speaker 1: should be built here. This is a wonderful conversation today

596
00:32:17,800 --> 00:32:20,560
Speaker 1: with Debbie Dingles. She's a congresswoman from Michigan, of course,

597
00:32:20,600 --> 00:32:23,760
Speaker 1: and wife of Lake John Dingle. I watched the festivities

598
00:32:24,040 --> 00:32:28,880
Speaker 1: congresswoman yesterday between the acclaim Maxine Waters, age eighty, head

599
00:32:28,880 --> 00:32:31,640
Speaker 1: of the House Financial Services Committee, and at one point

600
00:32:31,680 --> 00:32:34,600
Speaker 1: I said to myself, John Dingle would never have asked

601
00:32:34,680 --> 00:32:38,360
Speaker 1: questions in that way, where is the civility gone? Where

602
00:32:38,480 --> 00:32:41,880
Speaker 1: is the grace gone? Even in talking to Evil Wall Street?

603
00:32:42,160 --> 00:32:44,920
Speaker 1: Instead of the almost sniping that we saw over the

604
00:32:45,000 --> 00:32:48,560
Speaker 1: last number of days. I am very concerned about the

605
00:32:48,560 --> 00:32:51,440
Speaker 1: tone of what happening in America period. Thank you. You know,

606
00:32:51,440 --> 00:32:55,400
Speaker 1: are trying never to attack anybody individually, from the White

607
00:32:55,400 --> 00:33:01,960
Speaker 1: House on down, but we leaders set homes they you know,

608
00:33:02,040 --> 00:33:06,479
Speaker 1: the rhetoric, the lack of civility is coming every place.

609
00:33:06,680 --> 00:33:10,160
Speaker 1: I think the Internet, while it was founded to help

610
00:33:10,240 --> 00:33:15,080
Speaker 1: connect us, has become a tool of total lack of civility.

611
00:33:15,280 --> 00:33:20,960
Speaker 1: It lets people anonymously say the most divisive, horrendous, horrific thing.

612
00:33:21,840 --> 00:33:24,080
Speaker 1: And I think all of us, I mean, I've gotten

613
00:33:24,160 --> 00:33:28,080
Speaker 1: much more verbal about this. Uh since with all of

614
00:33:28,120 --> 00:33:30,920
Speaker 1: these shootings and all of the you know, I live

615
00:33:30,960 --> 00:33:34,800
Speaker 1: in the city that's got the largest population of Muslims

616
00:33:34,880 --> 00:33:37,560
Speaker 1: and the hate crimes that are going down there. You know,

617
00:33:37,640 --> 00:33:39,720
Speaker 1: you sort of live it in the community that you're

618
00:33:39,720 --> 00:33:43,600
Speaker 1: going in. But the Jewish community is also seen it.

619
00:33:43,600 --> 00:33:46,360
Speaker 1: It's not it's not okay, and all of us have

620
00:33:46,480 --> 00:33:49,560
Speaker 1: to start now, but it starts. I want the House

621
00:33:49,640 --> 00:33:51,200
Speaker 1: has to do it, The Senate's got to do it.

622
00:33:51,400 --> 00:33:54,160
Speaker 1: Administration has got to do it. People yearned, maybe for

623
00:33:54,200 --> 00:33:58,760
Speaker 1: a moderate Republican or moderate Democrats stance here. How should

624
00:33:59,240 --> 00:34:04,920
Speaker 1: old line Democrats and disaffected Republicans. How should they adapt

625
00:34:05,000 --> 00:34:09,560
Speaker 1: to the new strident progressive democratic message? Do they wait

626
00:34:09,680 --> 00:34:12,840
Speaker 1: it out? Did they change it? Now? Even President Obama

627
00:34:12,880 --> 00:34:15,200
Speaker 1: the other day weighing in on this, what would you

628
00:34:15,280 --> 00:34:19,759
Speaker 1: do there? Do you just his patients the Dingle prescription? Well,

629
00:34:19,840 --> 00:34:22,480
Speaker 1: John Geggle probably would be more patient than well, actually

630
00:34:22,560 --> 00:34:25,000
Speaker 1: John Diggle would be twittering right now with some of

631
00:34:25,080 --> 00:34:27,880
Speaker 1: these very wise thoughts. You know when he did adapt.

632
00:34:28,000 --> 00:34:33,440
Speaker 1: You know when John Staph used to collect his wittisms

633
00:34:33,520 --> 00:34:36,759
Speaker 1: or are the things that his daily you know, sort

634
00:34:36,760 --> 00:34:41,040
Speaker 1: of wisdoms that he would just say, you can't imagine

635
00:34:41,120 --> 00:34:44,560
Speaker 1: any sus twitter very well, because his wisdom was sort

636
00:34:44,560 --> 00:34:48,760
Speaker 1: of made for Twitter. I myself, I'm not a raping

637
00:34:49,080 --> 00:34:52,360
Speaker 1: We'll know and will call me that. Uh, But I

638
00:34:52,440 --> 00:34:56,640
Speaker 1: am for medicare for all. But I want to figure

639
00:34:56,640 --> 00:35:00,319
Speaker 1: out how we get health care for every American. But

640
00:35:00,400 --> 00:35:03,000
Speaker 1: I want to bring everybody to the table. I don't

641
00:35:03,080 --> 00:35:05,520
Speaker 1: you know. A lot of this is true. We have

642
00:35:05,640 --> 00:35:09,600
Speaker 1: to have these economic discussions. We're the only industrialized nation

643
00:35:10,239 --> 00:35:13,880
Speaker 1: in the world that doesn't guarantee all of its citizens healthcare,

644
00:35:14,160 --> 00:35:17,600
Speaker 1: and we're competing in a marketplace where we're chased twice

645
00:35:17,640 --> 00:35:21,560
Speaker 1: as much as most of the countries and getting okay,

646
00:35:21,640 --> 00:35:24,480
Speaker 1: But the great fear of socialized medicine. Can the Democratic

647
00:35:24,560 --> 00:35:28,799
Speaker 1: Party with a Democratic president, can they deliver modern healthcare

648
00:35:28,880 --> 00:35:32,840
Speaker 1: that isn't socialized. We have to figure that out. And

649
00:35:33,120 --> 00:35:36,319
Speaker 1: you know the factor menders. Everybody screamed about the Affordable

650
00:35:36,400 --> 00:35:39,520
Speaker 1: Care Act and it's not perfect. There are things that

651
00:35:39,719 --> 00:35:41,960
Speaker 1: must be changed, and we can't get to changing or

652
00:35:42,000 --> 00:35:45,520
Speaker 1: making them law better because everybody's always playing games with it.

653
00:35:45,600 --> 00:35:49,239
Speaker 1: But you've seen how the pendulum has swung from ten

654
00:35:49,320 --> 00:35:52,840
Speaker 1: years ago where everybody it was, you know, it was

655
00:35:52,880 --> 00:35:56,600
Speaker 1: the worst thing since life bread and now in the

656
00:35:56,719 --> 00:36:01,480
Speaker 1: last election, people understand that ut we need to protect

657
00:36:01,480 --> 00:36:04,239
Speaker 1: people with creating conditions if people are trying to want

658
00:36:04,239 --> 00:36:09,399
Speaker 1: to make people forget that. In the late and when

659
00:36:09,480 --> 00:36:13,960
Speaker 1: that field was passed, the auto companies were healthcare providers

660
00:36:13,960 --> 00:36:17,480
Speaker 1: who happened to build products, and a lot of companies

661
00:36:17,560 --> 00:36:21,040
Speaker 1: the healthcare costs of a very small business, Uniford healthcare.

662
00:36:21,280 --> 00:36:23,600
Speaker 1: You got to figure this out. Well, we gotta figure

663
00:36:23,600 --> 00:36:25,319
Speaker 1: it out, and there's an urgency to a de Wie Dingle.

664
00:36:25,400 --> 00:36:29,319
Speaker 1: Thank you so much for an extended conversation today. Debor

665
00:36:29,480 --> 00:36:33,640
Speaker 1: Dingle of the twelfth District in Michigan, a Democrat. Thanks

666
00:36:33,640 --> 00:36:37,920
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen

667
00:36:38,120 --> 00:36:43,480
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform

668
00:36:43,560 --> 00:36:47,880
Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.

669
00:36:47,920 --> 00:36:51,440
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio